Legislature(2015 - 2016)

2016-01-19 Senate Journal

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2016-01-19                     Senate Journal                      Page 1613
SB 146                                                                                                                        
SENATE BILL NO. 146 BY THE SENATE RULES COMMITTEE                                                                               
BY REQUEST OF THE GOVERNOR, entitled:                                                                                           
            "An Act relating to the investment, appropriation, and                                                             
             administration of the public school trust fund; and                                                               
          providing for an effective date."                                                                                     
was read the first time and referred to the State Affairs and Finance                                                           
The following fiscal information was published today:                                                                           
 Fiscal Note No. 1, zero, Department of Revenue                                                                                 
Governor's transmittal letter dated January 18:                                                                                 
Dear President Meyer:                                                                                                           
Under the authority of Article III, Section 18, of the Alaska                                                                   
Constitution, I am transmitting a bill relating to the investment,                                                              
appropriation, and administration of the public school trust fund                                                               
(AS 37.14.110).                                                                                                                 
The bill proposes to modify how the public school trust fund under                                                              
AS 37.14.110 is administered to generate monies that support the                                                                
State's public school program. Under current law, the net income from                                                           
the fund is made available for appropriation to support public schools.                                                         
To facilitate appropriations of income, the public school trust fund is                                                         
invested and administered in a manner that distinguishes between                                                                
principal and income. As treasurer of the fund, the Commissioner of                                                             
Revenue has responsibilities related to administration and reporting of                                                         
the fund.                                                                                                                       
Under the proposed bill, a percent of market value (POMV) approach                                                              
will be established. First, on July 1 of each year, the Commissioner of                                                         
Revenue will determine the monthly average market value of the fund                                                             
for the previous three years. Under the POMV approach, five percent                                                             
of the rolling three-year average of monthly market values will be                                                              
available for appropriation to support public schools. The modified                                                             
investment standard in the proposed bill maximizes the total return on                                                          

2016-01-19                     Senate Journal                      Page 1614
investments derived from both capital appreciation and income.                                                                  
Furthermore, this POMV approach will provide a more stable and                                                                  
predictable revenue source for the State to support public schools. The                                                         
investment standard also should encourage maximum total return on                                                               
investments, and yet provide a conservative and stable return for the                                                           
The substantive provisions in the proposed bill will not take effect                                                            
until after a court provides instructions that the proposed modifications                                                       
to the public school trust statutes do not violate the State's trust duties.                                                    
This provision recognizes the need to wait for resolution of pending                                                            
litigation respecting the public school trust fund.                                                                             
The current approach to administering the trust fund arises from a                                                              
1915 Act of Congress (48 U.S.C. § 353 (repealed 1959)) from which                                                               
the public school trust fund originates. The 1915 Act required the                                                              
Territory of Alaska to retain principal as a permanent fund. Only                                                               
income generated by the fund was available to support public schools.                                                           
These trust management provisions should not generally apply                                                                    
because the 1915 Act was repealed in the Alaska Statehood Act,                                                                  
excepting as applied to one section of land (48 U.S.C. prec. §21). The                                                          
contingent effective date will resolve any questions about the modified                                                         
approach to administering the public school trust fund and protect the                                                          
State from additional breach of trust claims.                                                                                   
I urge your prompt and favorable action on this measure.                                                                        
Bill Walker